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JC-NRLF 


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GIFT  OF 


THOS  APERNLEY 


(RELATING  TO  THE  DISTRIBUTION 

— , or 

(MERCHANDISE  AT  WHOLESALE 


Copyrifbt  1910 

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TMOft.    A.    P«RKtKT 

PblMelpbM 


What  Constitutes  the  Cost  of 
Doing  Business 

Relating  to  the  distribution  of 
Merchandise  at  Wholesale 


Tl  HE  ever-increasing  fierceness  of  competi- 
I  tion  has  demonstrated  the  necessity  for 
the  most  careful  management  of  business 
enterprises.  Profits  are  too  finely  cut  to 
permit  a  continuance  of  rule-of-thumb  methods 
and  greater  concentration  is  necessary  to  obtain 
greater  accuracy.  Careful  calculation  plays  a 
most  important  part  in  business  to-day  and  success 
depends  largely  upon  the  inauguration  of  better 
methods  all  around,  involving  a  means  of  securing 
clear,  concise  and  accurate  information  relative  to 
the  condition  of  one's  business. 

This  subject  of  the  cost  of  doing  business  is 
of  prime  importance,  and  while  there  is  nothing 
essentially  new  in  the  article  herewith  presented, 
perhaps  it  will  serve  to  make  business  men  think 
a  little  more  deeply  of  the  obligation  due  them  by 
the  business  in  which  they  are  engaged. 

The  increasing  cost  of  selling  a  given  amount 
of  goods  has  forced  business  men  to  look  into  the 
matter  very  thoroughly,  and,  if  possible,  find  some 
remedy  for  the  present  conditions,  although  it  is 
admitted  that  many  do  not  understand  the  full 
signifiance  of  the  question. 

The  increase  seems  to  be  partly     .  R 

explained  by  reason  of  the  decrease  -  p  . 

in  values   during   the  past  decades. 
It  is  now  necessary  to  sell  almost  double  the  quan- 
tity of   merchandise  to  equal   the  sales   of  twenty 
years  ago. 


In  speaking  or  this  phase  of  the  question,  a 
jobber  recently  said: 

"In  April,  1  884,  we  sold  a  bill  of  goods  to  a 
Wisconsin  customer ;  the  bill  amounted  to  $546.0 1 . 
In  1897,  thirteen  years  after,  we  took  the  trouble 
to  extend  that  same  bill  at  prices  then  ruling, 
and  found  that  at  that  time  it  would  only  amount 
to  $359.1  7.  In  other  words,  the  same  goods  were 
worth  30  per  cent,  less  in  1897  than  they  were 
in  1 884,  and  I  venture  to  say  they  would  net  still 
less  to-day.  To  carry  this  illustration  further,  we 
will  say  that  in  1  884  the  profit  on  the  goods  was 
10  per  cent.,  which  would  be  about  $54.60.  We 
will  say  that  the  entire  expense  of  doing  business, 
including  travelers',  store  expense,  etc.,  was  7j/>  per 
cent.,  or  $40.95  ;  this  would  leave  a  net  profit  of 
$1  3.65  on  the  bill.  In  1897  the  expense  in  dollars 
and  cents  would  be  precisely  the  same;  and  esti- 
mating the  profit  at  the  same  percentage,  we  have 
a  profit  of  $35.91,  while  the  expense  remains  at 
$40.95.  The  same  bill  which  in  1884  shows  a 
profit  of  $13.65  would  iii  1897  therefore  show  a 
loss.  Of  course,  we  have  taken  the  rate  of  profit 
at  a  nominal  figure  in  both  cases,  so  as  to  show  the 
workings  of  the  plan;  but  the  situation  is  even 
worse  than  it  appears,  for  to-day,  owing  to  the 
increased  traveling  competition,  this  customer 
would  not  buy  a  bill  of  this  size  from  one  jobber, 
but  would  divide  it  among  several,  while  this 
smaller  quantity  of  goods  would  be  sold  on  a  closer 
percentage  of  profit." 

~           £  Among  other  causes  of  increased 

Causes  tor  r     i    ,1             •  i 

,  expenses  we  rind  that  with  an  in- 
Increased  ,  r 
-  crease  in  population,  the  number  or 
Expenses  _,.  ., 

distributors    increases    sometimes    to 

a  greater  extent  than  seems  necessary  to  supply 
the  demands  of  the  trade.  As  a  result,  the  aver- 
age value  or  amount  of  the  individual  order  de- 
creases, with  a  consequent  increase  in  cost  of 
handling,  making  necessary  a  more  expensive  or- 
ganization to  conduct  the  business. 


The  publication  of  expensive  catalogues  repre- 
sents a  development  of  recent  years,  which  has 
added  considerably  to  the  expense  account,  as  have 
also  other  modern  advertising  items  which  are  gen- 
erously provided  for  the  benefit  of  the  trade. 

Again,  the  much  talked-of  higher  cost  of  living 
through  general  advance  of  prices  in  foodstuffs  and 
other  commodities  of  life  has  resulted  in  a  neces- 
sary advance  in  the  scale  of  salaries  and  wages 
paid  to  all  classes  of  help.  It  has  also  caused 
larger  daily  expense  accounts  of  traveling  salesmen 
through  advanced  hotel  rates. 

Senator  Lodge,  chairman  of  the  committe  ap- 
pointed by  Congress  to  investigate  the  causes  of 
the  higher  cost  of  living,  cited,  among  other  causes, 
the  following  as  the  most  marked: 

"Increased  cost  of  production  of  farm  products, 
by  reason  of  higher  land  values  and  higher  wages. 

Increased  demand  for  farm  products  and  food. 

Shifting  of  population  from  food-producing  to 
food-consuming  occupations  and  localities. 

Reduced  fertility  of  land,  resulting  in  lower 
average  production  or  in  increased  expenditures 
for  fertilization. 

Increased  banking  facilities  in  agricultural  local- 
ities, which  enable  farmers  to  hold  their  crops  and 
market  them  to  best  advantage. 

Reduced  supply  convenient  to  transportation 
facilities  of  such  commodities  as  timber. 

Cold  storage  plants,  which  result  in  preventing 
fluctuations  of  prices  of  certain  commodities  with 
the  seasons,  but,  by  enabling  the  wholesalers  to 
buy  and  sell  at  the  best  possible  advantage,  tend 
to  advance  prices. 

Increased  cost  of  distribution. 

Industrial  combination. 

Organizations  of  producers  or  of  dealers. 

Advertising. 

Increased  money  supply. 

Over-capitalization 

Higher  standard  of  living." 


It  is  interesting  to  note  lhat  this  congressional 
committee  has  recognized  as  an  item  of  increased 
cost  the  increased  cost  of  distribution. 

The  increased  value  of  realty  in  the  central  and 
business  districts  of  our  large  cities  has  forced 
wholesalers  generally  to  pay  rents  far  greater  than 
in  former  years. 

This,  of  course,  means  additional  selling  ex- 
pense, hence  the  increased  proportion  of  expense  to 
gross  sales. 

When  the  house  is  young  the  ex- 
Age  Brings  .   .  J 
.                          penses   are   at   a   minimum,   partners 
Increased                   ,     ,  i        ,    .  i 
-,                        probably   doing   a   large  portion   or 
Expense             V,              %           * 6      .  , 

the  work.      As   time   goes   on,    the 

Account  .        c  LI  J 

necessity  ror  more  help  comes,  and 

the  old  employes  are  constantly  looking  for  and 
receiving  increased  salaries.  Such  a  condition  is 
apparent  in  many  houses,  and  any  attempt  to 
"pmne  off  dead  wood"  would  be  very  difficult 
and  would  work  an  injustice  to  those  who  have 
given  their  best  years  of  loyal  service  to  the  house. 

Efficient  salesmen  are  demanding 
Salesmens  and    receiving    a    larger    remunera- 

Salaries  lion.      There  is  only  so  much  busi- 

Higher  ness  obtainable.      It   is   hard   to   in- 

crease the  volume,  and  if  one 
merchant  through  aggressive  measures  does  increase 
his  volume,  this  will  only  be  temporary,  as  others 
will  adopt  similar  aggressive  measures,  which  will 
result  in  an  equalization  of  the  volume  of  business. 

«  .         ,    r  Some  firms  or  corporations,  where 

a  anes  o  there    are    three    or    four    principals 

only,    have    been    in    the    habit    of 

charging  little  or  nothing  to  the  expense  account  for 

the  salaries  of  these  principals. 

Some  cases  have  come  to  our  notice  where  but 

$1200  or  $1500  apiece  has  been  charged  off  for 

those  who  would  most  assuredly  not  have  accepted 

any  such  remuneration  working  for  others,  but  who 

4 


saw  fit  to  incorrectly  minimize  their  expense  account 
by  charging  off  such  inadequate  amounts,  relying 
upon  the  profits  at  the  end  of  the  year  for  their 
full  remuneration. 

In  most  cases  such  principals  have  been  the  most 
active  men  in  the  house;  they  have  been  Executive 
Heads,  Buying  and  Sales  Managers  and  General 
Managers. 

Sometimes  they  have  sold  a  large  amount  of 
goods  in  connection  with  their  other  duties.  One 
particular  case  comes  to  mind  where  a  member  of 
the  firm  sold  $60,000  worth  of  goods  per  annum, 
and  in  addition  to  that  did  all  the  buying  for  the 
house.  No  salary  whatever  was  charged  off  either 
for  work  in  the  house  or  on  the  road. 

Surely  for  this  work  others  would 

i  i  •  i         -ri         r  i  Salaries  for 

have    been   paid.       1  heretore,    why          p  .     .     . 

not  charge  off  some  proper  amount 

i       c   i  i  f   .1  Should  be 

instead  or  having  a  member  or  the  .          , 

firm  do  this  work  and  charge  nothing 
for  services  rendered.     How  would  such  a  partner 
faje  if  there  were  several  inactive  partners  sharing 
equally  in  the  profits? 

Possibly  a  fair  average  estimate  of  what 
amount  of  salaries  of  active  principals  should  be 
charged  off  would  be  double  that  of  any  other 
person  in  the  employ  of  the  house. 

The  principals  not  only  furnish  experience  and 
expert  guidance,  but  never-ending  responsibilities 
and  anxieties  devolve  upon  them,  and  on  their 
policies  and  actions  depend  the  profit  or  loss  shown 
by  the  business. 

Where  the  principals  do  not  actively  participate 
in  the  conduct  of  the  business  others  are  well 
remunerated.  Their  salaries  are,  of  course, 
charged  off  to  the  expense  account. 

Every  one  should  know  in  a  gen-     0  . 

i  i.i-          i  Salesmen  and 

eral  way  what  his  salesmen  cost  to        _        .. 
sell   goods,   what  they  cost  in  per-        _. 
centage  and  then  compare  his  house 
costs. 


Rent  It  is  rather  startling  that  there  is 

any   diversity   of   opinion    regarding 
such  an  important  item  as  this. 

Some  firms  have  stated  that  they  were  under 
trifling  expense,  and  when  rent  was  mentioned  have 
said,  "What?  Rent!  Why,  we  pay  no  rent! 
We  otpn  the  building.  Of  course,  we  charge  off 
taxes  and  repairs  to  the  expense  account,  but  we 
have  a  great  advantage  over  competitors  in  that 
respect,  for  they  must  pay  rent.'* 

Surely,  if  they  would  not  have  occupied  the 
building  it  would  have  been  rented  at  market 
prices,  and  in  our  opinion  they  should  charge  off 
every  year  the  amount  which  they  could  secure  for 
the  property  if  it  were  rented  to  another  party, 
probably  8  per  cent,  on  the  market  value  and 
repairs  and  taxes  and  water  rent. 

Interest  on  Charging  interest  on  capital  being 


Capital 


a    mooted   question,    it    is   probably 
well  to  present  some  of  the  various 
phases  of  the  subject,  as  follows: 

One  may  readily  secure  the  current  rate  of  in- 
terest on  capital  by  investing  in  securities  of  such 
a  character  as  to  preclude  any  appreciable  chance 
of  losing  the  principal. 

What  a  person  expects  to  gain  who  embarks  in 
business,  superintending  the  employment  of  his  own 
capital,  is  much  more  than  the  rate  of  interest. 

The  rate  of  profit  should  be  far  in  excess  of  the 
rate  of  interest. 

The  first  and  prime  duty  of  the  business,  there- 
fore, is  to  earn  the  current  rate  of  interest. 

This  should  be  without  regard  to  dividends,  for 
a  sale  is  really  made  at  less  than  cost,  if  not  equal 
to  or  in  excess  of  the  invoice  cost  plus  operating 
expenses,  including  interest  on  capital. 

If  interest  on  capital  is  included  when  making 


up  the  cost,  and  the  year  is  not  a  good  one,  the 
dividends  will  at  least  be  guaranteed  if  sales  have 
not  been  made  at  less  than  cost;  and  by  cost  is 
meant  invoice  cost  plus  operating  expenses,  includ- 
ing interest  on  capital. 

Of  course,  losses  must  surely  result  in  years  of 
depression  when  sales  are  reduced  to  a  minimum 
and  the  ratio  of  expenses  to  sales  rises  out  of  all 
normal  proportion. 

The  surplus  profit  earned  is  partly  in  the  nature 
of  compensation  for  the  risk  involved.  He  who 
enters  into  business  always  exposes  his  capital  to 
some,  and  in  many  cases  to  very  great,  danger  of 
partial  or  total  loss. 

For  this  danger  he  must  be  compensated  liber- 
ally; otherwise,  of  what  use  would  it  be  to  incur  it? 

Writing  on  the  subject  of  "Profits,"  the 
eminent  scholar,  John  Stuart  Mill,  said:  "The 
gross  profits  from  capital,  the  gains  returned  to 
those  who  supply  the  funds  for  production,  must 
suffice  for  three  purposes: 

"First — They  must  afford  a  sufficient  interest 
on  capital. 

"Second — They  must  afford  a  sufficient  indem- 
nity or  surplus  earning  for  the  risks  involved. 

"Third — They  must  afford  a  proper  and  ade- 
quate remuneration  for  the  labor  and  skill  required 
on  the  part  of  the  principals." 

These  different  compensations  may  be  paid  to 
the  same  or  different  persons.  It  is  thus  clearly 
demonstrated  that  John  Stuart  Mill  held  the 
following  opinions: 

First — That  it  is  essential  to  charge  interest  on 
capital  to  provide  for  him  who  furnishes  it  and 
who  may  not  personally  undertake  the  risks  and 
trouble  of  the  business. 


Second  —  That  the  surplus  earnings  may  readily 
be  distributed  to  those  entitled  to  them. 

Third  —  That  the  salaries  of  principals  should 
enter  into  the  expense  account  in  order  to  present 
a  true  statement  of  net  earnings. 


Necessit     f  r  O   ^e   startec'   ^Y 

men    with    a    thorough    knowledge 

.  of  the  business  and  but  little  capital 

^  they    would    be    forced    to    borrow 

Capital  I  .          -p 

money  and  pay  interest  on  it.       1  o 

such  a  firm  with  inadequate  capital,  the  charge  of 
interest  on  capital  is  made  through  the  necessary 
charge  of  the  interest  on  the  borrowed  money, 
which  constitutes  their  capital. 

Suppose  a  case  where  two  firms  are  doing  an 
equal  business,  each  using  $100,000  capital  —  one 
has  cash  capital  of  the  full  amount,  the  other  has 
but  $40,000  cash—  and  borrows  $60,000  charg- 
ing interest  on  the  borrowed  money  to  the  expense 
account. 

Both  concerns  must  earn  a  profit  on  the  busi- 
ness done.  If  the  concern  with  full-paid  capital 
ignores  the  item  of  interest  on  capital,  will  they 
not  fail  to  show  as  satisfactory  a  result  at  the  end 
of  the  year  as  the  other  house? 

In  many  cases  where  the  owners  of  a  business 
desire  to  retire  and  sell  the  business  to  old  and 
trusted  employees  —  a  certain  amount  of  capital 
may  be  allowed  to  remain  in  the  business,  the  new 
purchasers  paying  the  interest  on  the  amount  to 
the  former  owners. 

In  order  to  make  any  headway,  and  to  ulti- 
mately make  a  success  of  the  business  and  com- 
plete its  purchase,  it  would  be  absolutely  necessary 
to  consider  interest  on  capital  as  an  expense  and  to 
include  it  when  figuring  overhead  or  fixed  charges. 

In  this  case  the  one  who  furnishes  the  capital 
is  remunerated  by  the  interest  which  must  be  paid 


him,  and  this  difference  between  the  interest  and 
gross  profit  may  be  laid  aside  as  a  surplus  account 
for  the  purchase  of  the  business. 

Even  if  they  had  started  with  plenty  of  money 
they  could  have  invested  it  instead  of  doing  busi- 
ness, and  secured  interest. 

In  partnership,  when  the  capital  is  not  equally 
contributed,  it  is  usual  and  customary  to  allow  each 
partner  interest  on  the  amount  of  capital  to  his 
credit  before  any  division  of  profits  is  made. 

The  most  successful  and  conservative  business 
men  hold  that  interest  should  be  charged  upon 
capital,  and  that  this  should  be  charged  to  the 
expense  account  and  not  to  the  interest  account. 

A  fair  plan  would  be  to  charge  at  least  4  per 
cent,  interest  on  capital  to  the  expense  account  as  a 
minimum  amount  for  the  capital  to  earn.  This 
precaution  will  provide  for  at  least  this  return, 
and  the  profit  can  readily  be  taken  care  of  in 
annual  dividends. 

In  arriving  at  the  true  cost  of  merchandise  by 
the  only  proper  method,  viz.,  adding  the  overhead 
expense  to  the  invoice  cost,  the  cost  will  be  too  low 
and  consequently  incorrect  if  interest  on  capital 
is  omitted.  The  expense  account  should  be  forced 
to  bear  the  interest  on  all  monies  invested  in  every 
case. 

This  would  include  interest  on  capital,  surplus 
and  borrowed  money. 

It    is    also    held    that   interest    on         interest  on 

borrowed  money  should  be  charged 

(       .        .  oorrowed 

to  the  expense  account,  tor  in  ninety 

r       i         i       i  •.  11  Money 

cases  out  or  a  hundred  it  would  not 

be  necessary  to  borrow  money  were  it  not  to  accom- 
modate some  delinquent  customers. 

A  charge  of  the  average  percent-          ^^  Debts 
age  of  losses  should  be  made  to  the 
expense  account  to  take  care  of  bad  debts,  as  it  is 
necessary  to  include  this  in  the  cost  to   make  the 
results  satisfactory  at  the  end  of  the  year. 
9 


Recapitulation         The    following    summary    shows 
of  Operating     the  various  items  of  expense  to  be 

Expenses        considered : 
Direct: 

Salaries  of  salesmen. 

Traveling  expenses  of  salesmen. 

Advertising,    including   catalogues. 

Gifts  to  customers. 

Salaries  of  buying  department. 

Expenses  of  buying  department. 

Labor  and  expenses  of  warehousing  department. 

Labor  and  expenses  of  shipping  department, 
including  all  deliveries  to  transportation  com- 
panies and  to  customers  locally. 

Indirect: 

Salaries  of  principals. 

Rent. 

Interest  on  capital  and  surplus. 

Interest  on  borrowed  money. 

Salaries  and  wages  of  house  employes. 

Dues  to  trade  organizations. 

Stationery. 

Postage. 

Telegraph. 

Telephone. 

Insurance:    Fire,    credit,    casualty,    partnership, 

bonds,   liability,  plate  glass. 
Depreciation  on  merchandise  on  hand. 
Unjust  claims  by  customers. 
Charity. 

Damage,    breakage,    loss,    freight    and    express 
charges  on   returned   goods. 
Collections. 

Miscellaneous  expense. 
Repairs.  Store  supplies. 

Fuel.  Warehouse  supplies. 

Light.  Warehouse  fixtures. 

Heat.  Store  equipment. 

Power.  Office  equipment. 

Freight.  Taxes. 

Bad  debts.  Legal   expense. 

10 


It  is  far  wiser  when  in  doubt  to  charge  an  item 
to  the  expense  account  than  to  charge  it  to  the  mer- 
chandise or  any  other  account. 

Every  expense  which  is  shown  on  the  ledger, 
every  amount  for  which  you  have  no  positive  credit 
return  upon  your  ledger,  is  chargeable  to  the  cost 
of  doing  business.  In  other  words,  practically 
every  expenditure  should  be  put  in  .the  expense 
account,  except  amounts  paid  for  merchandise,  and, 
in  some  cases,  freight. 

Exceptional    or    special    business        R     •    *       1 

should  not  be  considered  in   ascer- 

.    •    •        .1  or  bpecial 

taming  the  average  percentage  or  ex-          R    7 

pense,  for  if  included  in  the  amount 
of  gross  sales,   it  will  give  an  incorrect  and  mis- 
leading  result   and   cause   a   loss   on   the   regularly 
obtained  business. 

For  example:  A  house  enjoyed  the  patronage 
of  a  large  public  service  corporation,  and  for  a 
very  small  commission  purchased  their  supplies. 

They  unwisely  merged  this  special  business  into 
their  regular  sales  to  the  trade  and  arrived  at  their 
percentage  of  expense  accordingly. 

Another  concern  through  certain  banking  con- 
nections was  in  a  position  to  finance  companies 
which  used  material  in  which  they  dealt.  In  this 
manner  a  large  volume  of  business  was  secured. 
Instead  of  treating  it  as  special  business  when  cal- 
culating the  percentage  of  expense  of  conducting 
business,  they  merged  it  with  their  regular  sales. 
The  result  was  that  while  their  regular  business 
obtained  through  their  salesmen  cost  them  certainly 
1  5  per  cent,  on  the  sales,  they  deceived  themselves 
into  believing  that  it  cost  them  but  9  per  cent. 

This  method  of  figuring  may  have  led  them  to 
believe  that  they  were  unusually  clever  in  handling 
their  business,  but  their  competitors  who  based  their 
figures  on  regular  business  must  have  suffered  as  a 
result,  and  they  themselves  surely  lost  through  their 
improper  methods. 

11 


Sales  Attention  should  be  given  to  the 

of  misleading  effect  of  large  sales  of 

staples  on  the  percentage  of  selling 
expense  for  the  month  or  year. 

It  has  been  recommended  by  some  that  a  sepa- 
rate record  of  large  sales  affording  a  profit  of  less 
than,  say,  ll/2  per  cent,  be  kept. 

Such  a  record  serves  to  keep  clear  the  true  per- 
centage of  expense,  for  certainly  no  sales  of  staples 
in  bulk  at  a  trifling  advance  over  cost  should  be 
merged  into  the  sales  account  of  regular  goods 
sold  in  -small  quantities  at  a  greater  expense. 

No  business  man  should  allow  himself  to  be 
deceived  as  to  the  cost  of  doing  business  by  merg- 
ing such  sales  into  the  regular  sales  account,  yet 
not  a  few  openly  boast  of  their  wonderful  work 
in  reducing  their  expense  accounts  by  2  or  3  per 
cent,  when  the  truth  is  that  the  supposed  reduction 
is  caused  by  failure  to  segregate  such  large  sales  as 
are  here  referred  to. 

The  question  of  the  cost  of  sell- 
Cost  of        ing  goods  which  are  shipped  direct 
Selling  Goods   from  the  factory  to  the  customer  is 
Shipped  Direct  one  which  is  frequently  brought  up. 
from  Factory         The     manufacturer     urging     this 
method,   possibly  with  the  hope   of 
coming   into  greater  direct  contact  with  the   small 
trade,  claims  that  business  handled  by  direct  ship- 
ment costs  nothing — that  it  is  all   "velvet'* — clear 
net  profit. 

Is  it  not  necessary  to  go  to  some  expense  to 
build  up  friendly  relations  with  the  customer? 

Is  it  not  necessary  to  pay  the  salesman's  salary 
and  expenses  for  securing  this  business? 

Is  it  not  necessary  for  well-paid  buyers,  sales 
managers  and  clerks  to  give  their  close  attention  to 
this  business  that  it  may  be  properly  handled? 

Is  it  not  true  that  shipments  from  stock  may 
be  handled  by  a  lower  paid  class  of  help,  and 
that  the  business  may  be  disposed  of  in  a  day  or 
two  instead  of  the  two  or  three  weeks  necessary 

12 


to  close  a  transaction  when  the  goods  are  sent 
direct  from  the  factory? 

Is  not  the  credit  risk  on  .direct  shipments  quite 
as  great  as  on  shipments  made  from  stock,  and  is 
it  not  true  that  on  direct  shipments  of  heavy  staples 
you  are  asked  to  incur  a  heavy  credit  risk  for  a 
transaction  at  no  profit  or  a  possible  loss? 

In  fact,  the  only  gain  is  a  more  prompt  turn- 
over of  capital,  a  saving  of  warehouse  handling 
and  a  saving  of  warehouse  rent.  It  is  still  neces- 
sary to  meet  all  the  other  items  of  expense  as 
noted  on  page  10. 

Question:      If    it    costs     18    per 

cent,    to    sell    $100,000    worth    of  "° 

i.i         10  L  1  •  Decrease  with 

goods,     the     1  o    per    cent,     taking        _ 

£  ii  1  j      11          Increased 

care  or  the  general  expenses  and  all  si9 

operating  expenses,  should  it  cost  1  8 

per  cent  or  $18,000  to  sell  the  next  $100,000 

worth  of  goods? 

Answer:  It  should  not,  but  it  does. 

Many  have  an  idea  that  by  increasing  the  volume 
of  their  business  the  percentage  of  expense  can  be 
materially  reduced,  but  a  reply  to  this  by  a  large 
merchant  is  quoted  as  follows: 

"We  have  an  interesting  illustration  of  the 
amount  of  expense  in  the  years  1907-1908  and 
1909.  The  year  1907  was  a  very  good  one. 
Our  sales  increased  very  largely  as  compared  with 
1906.  Our  percentage  of  expense  decreased  very 
materially.  Then  there  was  a  pressure  on  the 
management  to  make  improvements.  We  wanted 
more  men  in  some  departments.  The  sales  depart- 
ent  wanted  more  help.  In  1908  we  increased  our 
expenses  by  adding  more  men  to  our  office,  stock 
and  shipping  force.  So  when  the  total  of  1 908 
was  compared  with  1907  we  found  the  increase  in 
the  expense  account  was  very  considerable.  When 
you  have  a  good  year  everybody  will  want  some- 
thing, and  when  there  is  a  bad  year  you  don't 
reduce  that  expense.  There  are  good  people  you 
don't  want  to  let  go,  and  our  expense  account  varies 

13 


from  year  to  year.  If  we  have  a  good  year  we 
catch  up,  but  you  have  to  increase  help  and  ex- 
penses." 

A  Summary  Illustrating  the  Conditions 
in  Connection  with  the  Distribution 
of  Plumbing  Supplies. 

The  fallowing  summary  of  a  business  of 
$500,000  per  annum  was  given  by  Mr.  Oscar  J. 
Saxe,  president  and  manager  of  the  Dalton-Inger- 
soll  Manufacturing  Company,  large  wholesalers  of 
plumbing  goods  in  Boston,  in  a  recent  address  be- 
fore the  New  England  Sanitary  Club. 

"Based  on  Cross  Business  of  $500,000  per  pear. 

Capital  of 75,000 

Borrowed  Money 50,000    Percenta  e 

Salaries  and  wages $45,000  9 

Rent 6,500           1.30 

Heat,  light  and  power 1,250             .25 

Taxes     1,250             .25 

Traveling   expenses    7,000           1.40 

Insurance     1 ,000               20 

Interest,   $50,000  borrowed   at  ) 

4}/2    per    cent 2,250  [•       1.05 

Capital  at  4  per  cent 3,000  ) 

Cartage     6,000           1.20 

Boxing    500             .10 

Postage     1,250             .25 

Stationery  and  printing 750             .15 

Telephone 

Freight  and  express 500             .10 

Catalogues,  advertising,  gifts 
to  customers,  charity  and 

miscellaneous    expenses    ....  6,000           1.20 

Bad  debts    5,000           1. 

Damage,  breakage  and  trans- 
portation charges  on  re- 
turned goods 1,000  .20 

Allowance  and  claims 1,000             .20 


$90,000        18.00 

14 


This   1  8  per  cent,  on  the  selling  price  is  22  per 
cent,  on  cost. 

STATEMENT  OF  SELLING  EXPENSES. 


JOHN  DOE  &  COMPANY, 
Machine  Tool  Dealers. 

Based  on  Cross  Business  of.  .$500,000  per  year. 

Capital  of    75,000 

Borrowed  Money 50,000 

Amount  in     Amount  in 
Dollars       Percentage 

Salaries  of  principals $9,000  1.80 

Salaries  of  salesmen 10,000  2.00 

All  other  salaries  and  wages.  .       6,000  1.20 

Rent     6,000  1.20 

Heat,  light  and  power 1,100  .22 

Taxes 600  .12 

Traveling  expenses 4,400  .88 

Insurance     800  . 1 6 

Interest,   $50,000  borrowed  at  ) 

6  per  cent 3,000  [•  1.50 

Capital,  at  6  per  cent 4,500  J 

Cartage 300  .06 

Boxing    1,200  .25 

Postage     1,200  .25 

Stationery  and  printing 1 ,000  .20 

Telephone 600  .12 

Freight  and  express   ........       2,000  .40 

Catalogues,  advertising,  gifts  to 
customers,  charity  and  mis- 
cellaneous expense 2,000  .40 

Bad  debts 2,200  .44 

Damage,  breakage  and  trans- 
portation charges  on  returned 

goods    500  .10 

Allowance  and  claims 800  . 1  6 


$60,000    12.02% 

NOTE. — This    12.02   per   cent,    on   the   selling 
price  is   13%  P6*"  cent,  on  the  cost 
15 


STATEMENT  OF  SELLING  EXPENSES. 


DOE  WHOLESALE  HARDWARE  COMPANY. 


Based  on  Cross  Business  of.. $500, 000  per  year. 

Capital  of    75,000 

Borrowed  Money 50,000 

Amount  in     Amount  in 
Dollars       Percentage 

Salaries  of  principals $9,000  1.80 

Salaries  of  salesmen    1 8,000  3.60 

All  other  salaries  and  wages.  .     10,500  2.10 

Rent     6,000  1 .20 

Heat,  light  and  power 1 ,500  .30 

Taxes 950  .19 

Traveling   expenses    8,000  1.60 

Insurance 800  .16 

Interest,   $50,000  borrowed  at 

4^  per  cent 2,250  .45 

Capital,  at  4  per  cent 3,000  .60 

Cartage    5,000  1.00 

Boxing    700  .14 

Postage 1 ,000  .20 

Stationery  and  printing 1 ,000  .20 

Telephone 500  .10 

Freight  and  express 1 ,800  .36 

Catalogues,  advertising,  gifts  to 
customers,  charity  and  mis- 
cellaneous expenses 5,000  1.00 

Bad  debts 2,500  .50 

Damage,  breakage  and  trans- 
portation charges  on  returned 

goods    1,500  .30 

Allowance  and  claims 1 ,000  .20 


$80,000        16.00 

NOTE. — This   1 6  per  cent,  on  the  selling  price 
is  19  per  cent,  on  the  cost. 


16 


What   is   the   percentage   of   cost  Some 

of    conducting    your    business?       In  Pertinent 

figuring  this,  please  take  your  total         Questions 
expense   and   total   amount   of   busi-        to  Consider 
ness  done,   but  do  not  include  any 
special  tonnage  business,  such  as  that  which  is  re- 
ferred to  on  pages   1  1    and   1  2. 

What  percentage  does  it  cost  you  for  the  busi- 
ness taken  by  your  salesmen?  In  answering  this 
question  you  should  not  figure  in  the  house  ex- 
pense. 

What  percentage  does  it  cost  for  house  ex- 
penses? In  figuring  this  take  total  cost  of  running 
your  business,  less  cost  of  traveling  salesmen,  and 
figure  on  the  total  amount  of  business  done. 

Do  the  officers  of  your  company  or  the  heads 
of  your  firm  draw  what  you  would  call  a  reason- 
able salary?  Would  they  accept  a  similar  amount 
from  others  for  services  of  a  like  nature  and  con- 
sider the  compensation  adequate? 

Do  you  charge  rent  if  you  own  your  build- 
ing? 

Do  you  charge  all  possible  moneys  paid  out  to 
the  expense  account  and  consequently  to  the  cost  of 
doing  business,  so  that  your  actual  financial  con- 
dition is  revealed  at  the  end  of  any  stated  period; 
or,  are  you  careless  and  do  you  try  to  deceive  your- 
self by  making  your  showing  better  than  it  really 
is? 

Do  you  keep  a  separate  account  of  each  depart- 
ment, so  that  you  may  know  what  percentage  of 
profit  each  makes;  what  the  gross  profits  are,  and 
what  the  expense  is,  in  order  that  you  may  have 
accurate  knowledge  of  what  every  department  is 
doing? 

Do  you  figure  the  profit  on  all  your  sales,  so 
that  you  keep  yourself  constantly  informed  of  your 
condition,  and  take  any  steps  necessary  to  bolster 
up  profits,  or  do  you  wait  until  the  end  of  the  year 
to  see  what  has  happened? 

Do  you  keep  a  record  of  each  salesman's  sales — 
17 


profits,  salary  and  traveling  expenses — and  do  you 
know  what  percentage  of  profit  he  has  made  after 
deducting  his  salary  and  expenses  from  the  gross 
profits,  not  considering  the  house  expense?  If  you 
do  this,  with  the  percentage  of  your  house  or  inside 
expenses  before  you,  you  will  know  the  actual 
value  of  each  salesman.  Some  who  are  first  in  the 
sales  column  may  be  last  in  the  profit  column. 

Do  you  charge  interest  on  money  used  in  the 
business  as  a  factor  in  the  cost  of  doing  business, 
or  do  you  look  to  your  final  results  »at  the  end  of 
the  year  to  take  care  of  this,  and  run  the  risk  of 
giving  customers  the  use  of  your  money  for  nothing? 

The    average    percentage    of    ex- 
Average  Cost     pense  of  distributing  merchandise  at 
of  Distributing   wholesale  seems  to  vary  but  little  in 
Merchandise     different  businesses. 
at  Wholesale  From   authentic   information   and 

accurate  data  collected  from  a  large 
number  of  wholesale  houses  the  percentage  of  ex- 
pense of  distributing  steam,  gas  and  water  supplies, 
plumbing  material,  mill  supplies,  electrical  supplies, 
hardware  and  many  other  lines  has  been  found  to 
average  between  1  5  and  1  6  per  cent,  on  the  sales. 

r  .  r.  Exact  knowledge  is  exceptional 

Exact  Figures  •  .1  u  .1 

Essenti  1        m          world  ot  commerce,  but  the 

fact  remains  that  the  prudent  man 

who  has  an  ideal  record  of  costs  and  applies  his 

knowledge  practically  is  the  one  who  out-distances 

all  his  competitors  in  the  long  run. 

He  is  the  one  who  adopts  the  methods  calculated 
to  attract  the  more  profitable  class  of  business;  to 
handle  the  goods  of  quality  in  such  a  way  as  to 
more  easily  negotiate  a  profit;  to  avoid  taking  the 
unprofitable  class  of  business  generally  fought  for 
by  those  who  do  not  count  the  cost.  He  who 
keeps  the  cost  constantly  in  mind  and  directs  his 
energies  accordingly  is  the  man  whose  business 
grows;  whose  new  warehouses  attract  the  favor- 
able comment  of  the  mercantile  community;  while 
his  competitor  who  fails  to  chart  his  course  with 
IS 


such  precision  flounders  about,  making  no  progress, 
becoming  more  and  more  convinced  that  the  fault 
is  not  his  by  any  means,  but  that  the  business  is 
hopelessly  unprofitable. 

In  his  recent  article  in  The  World's  Work,  Mr. 
John  D.  Rockefeller  writes: 

"Then,  again,  we  had  the  type  of  man  who 
really  never  knew  all  the  facts  about  his  own 
affairs.  Many  of  the  brightest  kept  their  books  in 
such  a  way  that  they  did  not  actually  know  when 
they  were  making  money  on  a  certain  operation  and 
when  they  were  losing.  This  unintelligent  com- 
petition was  a  hard  matter  to  contend  with.  Good 
old-fashioned  common  sense  has  always  been  a 
mighty  rare  commodity.  When  a  man's  affairs  are 
not  going  well,  he  hates  to  study  the  books  and  face 
the  truth.  From  the  first  the  men  who  managed  the 
Standard  Oil  Company  kept  their  books  intelli- 
gently as  well  as  correctly.  We  knew  how  much 
we  made  and  where  we  gained  or  lost.  At  least, 
we  tried  not  to  deceive  ourselves. 

"My  ideas  of  business  are,  no  doubt,  old-fash- 
ioned, but  the  fundamental  principles  do  not  change 
from  generation  to  generation,  and  sometimes  I 
think  that  our  quick-witted  American  business  men, 
whose  spirit  and  energy  are  so  splendid,  do  not 
always  sufficiently  study  the  real  underlying  foun- 
dations of  business  management. 

"I  have  spoken  of  the  necessity  of  being  frank 
and  honest  with  one's  self  about  one's  own  affairs; 
many  people  assume  that  they  can  get  away  from 
the  truth  by  avoiding  thinking  about  it,  but  the 
natural  law  is  inevitable,  and  the  sooner  it  is  rec- 
ognized the  better." 

Often  in  attempts  to  make  a  good  showing,  sales 
are  forced  blindly  as  far  as  a  knowledge  of  net 
profit  is  concerned,  when  it  would  be  far  better 
if  a  careful  investigation  of  the  cost  of  handling 
business  were  made  and  practical  common-sense 
and  judgment  employed  in  adjusting  prices  ac- 
cordingly. 

19 


Manufacturers  have  always  added  their  "over- 
head" and  selling  expenses  to  the  other  items  enter- 
ing into  the  cost  before  arriving  at  what  they  con- 
sider cost.  Merchants,  however,  have  not  followed 
this  custom,  with  the  result  that  salesmen,  and 
even  principals  have  unconsciously  felt  that  any 
amount  secured  above  their  invoice  cost  was  profit. 
Following  the  manufacturers'  method  of  using  a 
true  cost,  sales  could  be  made  at  cost  without 
suffering  any  actual  loss,  as  all  operating  expenses 
are  taken  care  of  in  this  cost.  Were  a  merchant 
to  sell  goods  at  what  he  invariably  calls  his  cost, 
however,  he  would  suffer  an  actual  loss  equal  to 
the  amount  of  his  operating  expense. 

Therefore,  would  it  not  be  advisable  to  figure 
costs  by  adding  the  overhead  expense  and  when 
discussing  profits  with  manufacturers  let  it  be  under- 
stood that  no  profit  is  realized  until  the  fixed 
charges  are  covered. 

Speaking  on  this  subject,  a  merchant  said: 

"Now,  then,  what  is  the  proper  cost  of  goods? 
Is  it  the  price  paid  at  the  factory?  Is  that  the 
cost?  You  add  freight.  Why?  Now,  are  there 
no  other  expenses  which  are  as  much  a  part  of 
the  cost  of  these  goods  as  the  freight  charges? 
Is  not  the  expense  of  the  man  who  buys  those  goods 
just  as  much  a  part  of  the  cost?  Is  not  the  sales- 
man's expense,  or  your  order  man  putting  them  up, 
your  bookkeeper,  your  bill  clerk,  your  house  man- 
agers, your  postage,  your  rent,  and  every  other 
individual  item  that  is  connected  with  the  expense 
account  part  of  the  cost? 

If  these  are  a  part  of  the  cost,  why  not  add 
them?" 

Percentage  of         It  should  be  borne  in  mind  that 

Expense  Not     the  expense  sustained  by  a  business 

the  Same  on     house     durjng     tne     year     g{ves     tne 

all  Laoods  f  r 

average    percentage    of    expense    or 

selling  all  goods,  but  does  not  give  the  percentage 
of  expense  of  selling  any  particular  one  of  the 
many  lines  of  goods  handled. 

20 


It  is  well  known  that  certain  heavy  staples  in 
continual  demand  are  less  expensive  to  handle  than 
are  small  goods  on  which  the  demand  is  lighter 
and  the  cost  of  handling  greater.  For  instance, 
where  the  average  cost  of  doing  business  is  1 5 
per  cent,  it  will  probably  cost  in  the  neighborhood 
of  1  }/2  to  1 0  per  cent,  to  handle  heavy  staples. 
It  will  cost  about  30  per  cent,  to  handle  high- 
grade  small  goods — bulky,  fragile  goods  which 
are  possibly  of  a  seasonable  character,  and  items 
where  the  unit  of  sale  is  small.  Other  goods  which 
take  up  considerable  space  in  warehouses  probably 
cost  about  1  8  per  cent,  to  handle. 

In  arriving  at  the  cost  of  handling  the  various 
lines  or  classes  of  goods,  the  proper  proportion  of 
the  expense  of  doing  business  and  the  expense  of 
each  salesman  in  effecting  sales  should  be  segre- 
gated and  charged  against  them. 

A  leading  wholesale  hardware  house  con- 
siders and  charges  specifically  to  each  department 
or  line  of  goods  the  following  items  of  expense: 

"1.  Interest  at  .  .  per  cent,  on  the  amount  in- 
vested in  stock. 

"2.     Insurance  and  taxes  on  stock. 

"3.  A  rental  charge  for  the  floor  space  occu- 
pied in  store  and  warehouses,  together  with  repairs 
and  alterations,  and  insurance  and  taxes  on 
buildings. 

"4.  .  .  per  cent  upon  the  amount  of  sales  for 
a  provision  against  bad  debts. 

"5.  The  salaries  and  other  expenses  incurred 
exclusively  (including  any  travelers  engaged 
specially)  for  the  department. 

"6.  Departmental  advertising  and  expense  of 
catalogues  in  proportion  to  the  amount  of  space 
occupied. 

"7.  A  proportion  of  all  general  traveling  ex- 
penses calculated  on  the  basis  of  the  cost  of  sales 
made. 

"8.  A  proportion  of  all  other  general  salaries 
21 


and  expenses  of  the  house,  based  on  the  cost  of  the 
total  sales  of  the  house  and  calculated  on  the  cost 
of  sales  in  each  department. 

"(NOTE. — General  expenses  comprise  salaries 
of  officers,  cashiers,  bookkeepers,  entry  clerks,  etc., 
whose  services  are  of  a  general  character  and  can- 
not be  segregated  into  one  or  more  departments; 
the  proportion  of  rent  for  offices,  aisles,  etc.,  also 
postage,  light,  heat,  cleaning,  stationery,  adver- 
tising of  a  general  character,  telephones  and  tele- 
graph, donations,  and  the  other  sundry  expenses 
which  are  necessary  in  conducting  business.) 

"The  sum  total  of  these  general  expenses  is 
divided  among  the  various  departments  in  propor- 
tion to  the  cost  of  the  goods  sold,  for  the  reason 
that  it  is  considered  a  more  equitable  basis  than  the 
amount  of  sales,  because  it  would  be  unfair  toward 
a  department  manager  who  obtains  a  good  rate  of 
profit  on  his  goods  to  be  charged  a  heavier  rate 
of  expense  in  consequence,  as  compared  with  a 
department  showing  a  lower  rate  of  profit. 

"Consideration  should  also  be  given  to  the  num- 
ber of  times  a  year  that  the  goods  can  be  turned; 
the  proportion  which  the  item  bears  to  the  whole 
amount  of  goods  sold ;  the  portion  of  the  hauling 
and  packing  account  which  the  item  should 
assume. 

"In  dividing  traveling  salesmen's  salaries  and 
expenses,  a  less  proportion  is  segregated  against 
the  departments  comprising  heavy  staples,  for  the 
reason  that  less  time  is  necessary  for  selling  these 
articles  than  the  general  line  of  goods. 

"By  means  of  this  close  calculation  of  the 
various  expenses  the  actual  cost  or  business  expense 
of  each  department  is  arrived  at,  and  a  percentage 
representing  the  total  of  such  expense  is  added  to 
the  flat  cost  of  the  goods  in  each  department,  in 
order  to  obtain  the  catalogue  or  store  cost  prior  to 
the  addition  of  the  proper  percentage  of  profit." 

The  percentage  of  expense  of  handling  any 
22 


given  line  of  goods  or  a  class  of  goods  in  which 
a  particular  line  would  naturally  fall,  can  be  ascer- 
tained by  following  the  rules  above.  This  plan 
may  appear  to  be  somewhat  radical  at  first  glance, 
but  it  is  not  so  much  so  as  one  would  think. 

It  is  not  necessary  to  employ  a  high-priced 
statistician  to  figure  the  cost  down  to  the  hundredth 
part  of  1  per  cent.,  but  the  cost  of  handling  dif- 
ferent classes  of  goods  may  readily  be  ascertained 
by  a  careful  calculation  and  consideration  of  the 
conditions  under  which  they  are  handled  and  sold. 

In  every  business  there  are  staples  which  are 
sold  at  a  trifling  advance  over  the  invoice  cost. 


Now,  if  it  is  ascertained  that  it        „ 
costs    7l/2    per    cent,    to    distribute 


these  staples  and  they  are  sold  on 
a  margin  of  but  2y2  per  cent,  profit, 
the  fact  that  you  know  that  it  costs  7^  per  cent. 
to  handle  them  may  not  immediately  result  in  a 
higher  price  being  secured,  but  certainly  when  you 
keep  before  you  the  fact  that  you  are  sustaining 
a  loss  of  5  per  cent,  on  their  sale  something  will 
be  done  to  at  least  cover  the  expense  of  selling. 

It  has  been  remarked  that  merchants  will  sell 
goods  down  to  a  basis  of  2l/>  per  cent,  profit,  but 
that  one  rarely  hears  of  a  merchant  selling  goods 
right  down  to  invoice  cost.  If  staples  cost  $1  and 
the  expense  of  distribution  is  1  ]/2  per  cent.,  why 
could  not  the  selling  price  at  least  be  made  equal 
to  the  true  cost  which  would  be  in  the  neighbor- 
hood of  $1.08j/2  (considering  that  the  cost  of 
doing  business  is  always  figured  on  the  selling 
price,  which  would  make  it  about  8j/>  per  cent. 
added  to  cost)  so  as  to  avoid  a  loss  on  the  trans- 
action. 

Again,  with  the  present  method  of  selling  staples 
at  an  advance  of  but  a  trifle  over  net  cost,  it  is 
necessary  to  secure  an  extortionate  profit  on  other 
goods  to  make  up  the  deficiency.  Such  a  practice 

23 


is  bad  in  its  effect  on  the  business,  and  forces  busi- 
ness men  to  do  some  things  which  are  harmful  and 
inequitable  in  the  extreme. 

A  prominent  merchant  said  some  time  since  in 
addressing  a  body  of  business  men: 

"Now  there  is  another  question  that  I  would 
like  to  put  to  you  in  this  line:  Did  you  ever  stop 
to  think  where  demoralization  of  prices  stopped? 
Now,  gentlemen,  you  all  say  that  you  cannot  get 
this  price  and  cannot  get  that  price.  Have  you 
ever  had  a  salesman  that  sends  in  an  order  that 
he  don't  get  a  little  more  than  factory  price  or 
cost  of  goods?  Is  not  that  true?  Just  consider 
and  see  if  it  is  not  a  fact  that  in  all  the  great 
demoralizations  of  prices  that  we  have  been  com- 
pelled to  go  through,  and  I  speak  of  not  only  the 
present  condition,  but  of  four  years  previous  to 
last  year,  if  the  bottom  that  was  reached  on  goods 
was  not  within  5  per  cent,  of  the  factory  cost. 
Why  was  it  gentlemen?  Why  did  it  stop  there? 
If  demoralization  takes  place  and  there  is  no  con- 
trol of  the  prices,  why  do  you  stop  at  any  par- 
ticular point?  Did  you  ever  stop  to  think  of  it? 
Instead  of  selling  those  goods  at  $1.05,  why  did 
he  not  sell  at  90  cents?  I  tell  you,  gentlemen, 
because  that  salesman  came  home  and  looked  you 
in  the  face  and  said,  'I  could  not  get  any  more 
money  on  this,  but  I  got  $5  on  this  sale  and  that 
produces  that  much  toward  the  expense  account/ 

"Gentlemen,  you  will  not  stop  demoralization, 
it  is  my  belief,  until  you  fix  the  cost  and  your  sales- 
man will  not  go  very  far  below  that  cost.  That 
is  the  first  great  strong  powerful  step  for  us  to  take. 
Put  on  a  cost  that  includes  all  fixed  charges  of 
doing  business." 

It  may  be  said  "The  plan  sounds  all  right,  but 
is  it  practical — will  it  work  out?"  In  answer  to 
this  possibly  the  best  reply  is  that  it  is  and  has 
been  found  entirely  feasible  and  quite  satisfactory 
by  those  houses  who  have  adopted  it. 


24 


By  following  this  plan  selling  prices  may  be 
equitably  based  on  the  true  cost  of  handling  each 
line  or  class  of  goods. 

If  under  a  haphazard  plan  of  pricing — some 
goods  costly  to  handle  have  been  priced  too  low — 
a  readjustment  can  probably  be  made  readily.  In 
fact,  you  will  have  selling  prices  based  on  precise 
knowledge  of  costs,  and  no  sales  can  be  made  at 
less  than  your  true  cost  without  an  instant  reali- 
zation of  the  fact. 

The  general  impression  among  manufacturers 
seems  to  be  that  goods  should  be  distributed  on  1  0 
per  cent.,  and  that  1  5  per  cent,  is  a  fabulous  profit. 
It  is  patent  to  the  jobbers,  however,  that  such  dif- 
ferentials are  not  remunerative  and  scarcely  cover 
operating  expenses. 

A   profit   of    5    per   cent,    would    .  g      up    r 

undoubtedly   be   satisfactory   to   the 

I    ,  .1  •    r  .  i        But  It  Must 

jobber,  but  this  j  per  cent,  must  be         DM 

"in  the  clear,"  after  the  expense  of 
distribution  has  been  defrayed. 

Again,  figure  true  costs,  and  do  not  deceive 
yourself.  If  goods  are  billed  at  $1  each  and  it 
costs  you  1 5  per  cent,  on  the  sale  to  sell  them, 
speak  of  your  cost  as  $1.18,  and  let  it  be  known 
that  no  profit  is  made  unless  the  sale  is  made  in 
excess  of  that  figure. 

Public  opinion  generally  seems  to  be  opposed 
to  combinations  to  uphold  prices.  The  time  has 
come,  however,  for  business  men  to  bolster  up  a 
declining  range  of  prices  by  protecting  themselves 
and  the  investors  whom  they  represent. 

Mercantile  pursuits  must  do  more  than  return  a 
meagre  5  or  6  per  cent,  dividend  for  the  lifeblood 
which  is  poured  into  them.  Such  a  return  could 
easily  be  swept  away  by  some  unfavorable  turn  of 
the  market. 

25 


ID  It    has    been    the    experience    of 

A  Poor  , 

D  some  merchants  to  conduct  a  busi- 

ness of  $500,000,  $1,000,000  or 
$2,000,000  per  annum  at  an  average  percentage 
of  expense  of  1  5  per  cent,  over  a  period  of  years. 
The  dividends  declared  have  amounted  to  but  7 
per  cent.,  or  a  net  profit  on  the  turn  over  of  but 
1  y2  per  cent.  Would  not  a  slight  turn  for  the 
worse  in  the  market,  a  few  heavy  loses  or  a  run 
of  unjust  claims  wipe  out  such  a  narrow  margin? 

A  Pr  fit  Years    of    intelligently    directed 

labor    and    ownership    and    skillful 
Must  Be  ,      . 

KT        .       ,          management    or    a    large    business 
Negotiated  ,       i  j     i    • 

enterprise    should     bring    a    proper 

reward. 

These  years  should  witness  the  accumulation  of 
a  snug  fortune  as  a  provision  for  later  years  and 
posterity.  How  such  a  proper  ambition  could  be 
achieved  from  a  business  offering  such  small  returns 
is  not  evident,  and  will  probably  continue  to  be 
impossible  unless  a  changed  policy  is  adopted  by 
business  men  generally. 

Every  man  starts  out  in  business  to  make  a 
profit;  but  nine  out  of  ten  men  forget  to  see 
whether  their  business  is  profitable  as  it  progresses. 
They  imagine  that  orders  mean  business;  and  that 
business  means  profit;  the  more  business  the  more 
profit.  This  is  a  fallacy  that  has  often  been 
proved  in  that  severe  school  of  commercial  educa- 
tion, the  bankruptcy  court. 

Why  will  men  do  business  without  a  profit? 
Do  they  desire  to  become  public  benefactors,  pay- 
ing help  and  working  to  distribute  the  wares  of 
various  manufacturers  without  recompense?  Will 
any  one  thank  them  for  it? 

Will  the  customers  who  have  benefited  put  forth 
a  hand  to  save  a  bankrupt  from  the  workhouse, 
when  ruined  in  business  and  broken  in  health? 
No!  not  a  bit  of  it.  The  world  will  move  on, 
shrug  its  shoulders,  and  say,  "Why  was  he  fool 
enough  to  work  at  no  profit?" 
26 


All  reason  and  common  sense  should  tell  a  man 
that  he  must  work  to  make  a  profit,  and  no  profit 
can  be  made  until  after  the  operating  expenses  are 
defrayed.  Every  man  in  business  ought  to  have 
constantly  staring  him  in  the  face  the  words,  Make 
a  profit!  Write  it  large,  have  it  prominently 
before  you  every  minute,  impress  its  importance  on 
every  employe  who  has  to  do  with  sales.  Rub  it 
in  thickly  for  it  breeds  success — "Make  a  Profit!" 
"Make  a  Profit!"  "MAKE  A  PROFIT!" 

The    demand    for    a    better    and       ,.     ,  „, 

..11  r   ii  Hard  Work 

more   equitable   return   is    lully   jus-  - 

tified    and    must   be   pressed.      We      c      „  D  4 

i  £      Small  Return 

give  to  our  business  all  we  have  or 

time,  of  labor,  and  devotion,  and  if  we  are  its 
servants,  at  least  it  should  pay  us  well,  for  our 
service  is  with  more  than  the  laborers'  wage. 

How  many  hours  have  you  worked,  how  many 
days  a  year,  to  make  a  beggarly  6  per  cent,  clear 
on  your  investment?  How  many  times  have  you 
gone  home  sick  with  the  worries  of  a  business 
whose  expenses  were  howling  like  rvohes  at  the 
heels  of  its  profits? 

And  what  for?  Partly  for  the  same  reason  that 
prompts  every  man — that  dogged  spirit  that  is  in 
all  of  us,  the  grim  determination  to  make  a  success 
of  a  hard  game.  Partly  that  and  partly  because 
the  profit  must  be  wrung  from  the  business  if  we 
are  to  live.  Most  of  us  are  willing  to  pay  the 
price  and  succeed,  but  at  what  a  terrible  cost. 

The  opportunity  has  now  come  for  men  of  com- 
merce to  develop  their  business  to  a  more  profitable 
degree  by  discontinuing  the  old  false  cost  system 
and  making  every  day  grow  bigger  in  its  dividend- 
earning  power  by  selling  goods  at  a  price  based 
on  the  true  cost,  viz.,  the  invoice  price  plus  the 
operating  expenses,  paying  proper  attention  to  the 
varying  cost  of  handling  different  lines  of  goods. 

In  this  way,  and  in  this  way  only,  will  the  profit 
possibilities  of  the  business  of  distributing  mer-> 
chandise  be  realized. 

27 


$I'°°    ON    THE 


DAY 


